Money – How to get a better mortgage deal

Some say the word “mortgage” comes from the old French “mort gaige”, literally “death pledge”. The pledge ends (dies) when either the obligation is fulfilled or the property is taken. A more modern meaning defines mortgage as a legal agreement by which a bank or building society lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.

So, how can you get a better mortgage deal overall and how can you pay it off quicker so that it doesn’t feel like you have taken on a 30-year death sentence? Here’s a few tips to make the journey easier.

Consider this: A $300,000 Mortgage at, say, 5.5 per cent, repaid over 30 years will result in you paying back $613,440 – over twice the amount borrowed. Whereas if you structured your loan to repay over, say, 20 years you would only pay $495,360, and over 10 years only $390,720. Most lenders will structure you into a 30-year mortgage without much consultation. You can have the mortgage approved over 30 years, but remember you don’t need to pay it off over 30 years. Have your loan approved over a 30-year term, but make payments based on a 20 or 25-year term if you can afford it. You will save thousands in interest.

Split your loan into part fixed rate and part floating rate; the larger part on fixed and the smaller part on floating. Pay off the floating portion quickly, without penalty. When the fixed portion has matured, make a lump sum payment, redraw the floating portion and start the fast payment process over again.

Use a revolving credit facility as part of your mortgage and have all your income go direct into the mortgage. Why? Interest on loans is calculated on the daily outstanding balance.

As soon as your income goes into the loan, the balance is reduced by that amount and interest is calculated on the lower balance.

Negotiate on interest rates, Kiwis are not naturally good negotiators, but if you don’t ask, you don’t get.

Grant Clifton, Countrywise Financial
www.countrywise.co.nz